Pablo Antolin, Fiona Stewart, 01 May 2009

The current crisis has reduced the value of retirement assets by nearly 25%. This column examines policymakers’ reponses to the impact of the financial crisis on global pension assets in light of international best practices, highlights the continued importance of private pensions, and suggests ways to improve the regulation, supervision, design and management of these funds.

Charles Goodhart, 24 April 2009

The crisis has spawned a handful of books on how to fix the world’s financial system. This column reviews the NYU Stern book edited by Viral Acharya and Matthew Richardson. It says that the book’s prologue on “The Financial Crisis of 2007-8: Causes and Remedies” is the best single paper yet written on the background and development of the crisis.

Alberto Alesina, Paola Giuliano, 23 April 2009

Will Americans turn into “inequality intolerant” Europeans? Such a radical shift is unlikely, but this column argues that this crisis may be a turning point towards more government intervention and redistribution in the US. More and more Americans believe that hard work is insufficient to climb the income ladder and are expressing anger against “unfairly” accumulated wealth. Politicians should prefer wise policies but may be tempted by populist outbursts.

Heiko Hesse, Brenda González-Hermosillo, 21 April 2009

This column examines the use of key global market conditions to assess financial volatility and the likelihood of crisis. Using Markov regime-switching analysis, it shows that the Lehman Brothers failure was a watershed event in the crisis, although signs of heightened systemic risk could be detected as early as February 2007.

Jon Danielsson, 25 March 2009

Many are calling for significant new financial regulations. This column says that if the “regulate everything that moves” crowd has its way, we will repeat past mistakes and impose significant costs on the economy, to little or no benefit. The next crisis is years away – we have time to do bank regulation right.

Michael Dooley, Peter Garber, 21 March 2009

This column argues that current account imbalances, easy US monetary policy, and financial innovation are not the causes to blame for the global crisis. It says that attacking Bretton Woods II as a major cause of the crisis is an attack on the world trading system and a sure way to metastasise the crisis in the global financial system into a crisis of the global economic system.

Jon Danielsson, Hyun Song Shin, Jean-Pierre Zigrand, 11 March 2009

By incorporating endogenous risk into a standard asset-pricing model, this column shows how banks’ capacity to bear risk seemingly evaporates in the face of market turmoil, pushing the financial system further into a tailspin. It suggests that risk-sensitive prudential regulation, in the spirit of Basel II, makes systemic financial crises sharper, larger, and more costly.

Enrico Perotti, Javier Suarez, 27 February 2009

In this new Policy Insight Enrico Perotti and Javier Suarez explain how a liquidity and capital insurance arrangement could provide emergency liquidity (and perhaps capital) and protect the economy against systemic crisis.

Enrico Perotti, Javier Suarez, 27 February 2009

Correlated liquidity risks caused subprime mortgage problems to spread widely and sow panic that led to the credit crisis. This column proposes a mandatory liquidity charge to insure against collective bank runs in the future. It argues for charges proportional to securities’ maturity mismatches so as to discourage practices that create systemic risk.

Salvatore Rossi, 25 February 2009

There are two schools of thought on how to get credit flowing again. One suggests buying the toxic assets, the other says to recapitalise banks. This column says that both approaches are necessary, though the right balance will vary across nations. The real difficulty is aligning incentives – in both pricing assets and recapitalising banks, bank managers’ interests may thwart governments’ objectives.

Enrique Mendoza, 12 February 2009

This column rehabilitates Irving Fisher’s debt-deflation theory to explain the current crisis. It suggests that fiscal stimulus will do little to prevent the crisis from becoming a protracted slump because the problem lies in finance. A cure will require reversing deflation and restarting the credit system.

Viral Acharya, Matthew Richardson, 07 February 2009

How did global finance become so fragile that a collection of bad mortgages in the US could bring the entire system to its knees and the global economy along with it? How can this fragility be eliminated? This column describes the answers provided in an important new book which has been written by a team of world-class scholars from NYU’s business school.

Sylvester Eijffinger, 05 February 2009

This column outlines the Netherlands’ economic recovery plans and compares them to those of other EU members. The Dutch and German plans are sound, as they focus on inducing investment rather than assisting consumers and avoid picking winners amongst industries. But their efforts may not be enough, given recession forecasts.

Hyun Song Shin, 31 January 2009

Today’s financial regulation is founded on the assumption that making each bank safe makes the system safe. This fallacy of composition goes a long way towards explaining how global finance became so fragile without sounding regulatory alarm bells. This column argues that mitigating the costs of financial crises necessitates taking a macroprudential perspective to complement the existing microprudential rules.

Robert J. Gordon, 30 January 2009

Robert Gordon of Northwestern University talks to Romesh Vaitilingam about the causes and consequences of the economic crisis, the emerging consensus on the need for fiscal stimulus, and the challenge to the schools of thought that have dominated macroeconomics in recent decades. He argues that we will see a return to old-fashioned Keynesian (non-market clearing) analysis in macroeconomic teaching and research. The interview was recorded at the American Economic Association meetings in San Francisco in January 2009.

Zsolt Darvas, Jean Pisani-Ferry, 23 January 2009

The financial crisis is now hitting several of the non-euro-area new member states hard, highlighting the shortcomings of Europe’s monetary architecture. Crisis management in the euro area has had the unintended consequence of putting non euro-area new member states at disadvantage. Without decisive action, a new political and economic divide within Europe may emerge.

Leigh Caldwell, 21 January 2009

This column argues responses to the recession should not be based on unrealistic expectations of rational behaviour. It argues that models of bounded rationality provide reasons that traditional macroeconomic policy responses may fall short and suggests more sophisticated solutions that could break the crisis’s psychological hold on markets.

Axel Leijonhufvud, 13 January 2009

Following the analysis of the crisis’s causes in the yesterday’s column, this column suggests that the new financial regulatory system should impose effective reserve requirements on deposit-taking banks, and impose capital requirements for virtually all financial institutions with these requirements being counter-cyclical to dampen the boom-bust cycle.

Axel Leijonhufvud, 12 January 2009

This column explains how lack of regulation and failed monetary policy caused the failure of financial markets and then illustrates the banking crisis with simple arithmetic. It concludes that the automatic adjustment of free markets is ineffective in producing a recovery from this recession.

Luis Jácome HG., 03 January 2009

As the global economic crisis goes south, developing countries' central banks must cope with financial turmoil. Recent experience in Latin America, this column argues, cautions against pouring money into the financial system. Countries that relied on prompt corrective actions managed crises well, while those relying on central bank money suffered greater instability.

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